2. Read Only - You can't save changes to t... QUESTION THREE Shopfree Ltd is a retail company based in Lusaka, An Intern Analyst has extracted the following information for your review relating to the financial plan for the year ending 31 March, 2021. 160 Sales (K'm) Gross Profit mark-up (%) 35 The operating cycle for the retail trading industry has been calculated as follows: Inventory 64 Days Page 3 of 4 Receivable Payables Quick ratio 88 Days 110 Days 1.2 times Required: A. Calculate the expected investment in the following: i. Inventory [3 Marks) ii. Receivables [2 Marks] iii. Payables [2 marks] B. Calculate the target current ratio. [3 Marks] C. Determine the working capital requirement expected over the period. What would be the cost of financing the requirement if short term bank loans were at 8%? [5 Marks] D. Advise when overdraft financing would be advisable as compared to receivables factoring. = QUESTION TWO The following information was extracted from ABC Ltd's financial statements for the year ended 31 December 2019 a. Sales on 30 November 2019 were K100 million and K110 million on 31 December 2019. For the year 2020, sales are expected to double at a constant monthly rate. b. 80% of the sales made are on account; the remainder on cash. c. From past experience, 5% of the receivables have turned out to be irrecoverable. d. Credit customers pay as follows: i. 75% in the month following the sale; 15% two months after the sale month. e. Inventory levels are maintained at 20% of the following month's sales. f. Accounts payables are at settled at 30 days after purchase. ii. Required: i. Prepare a collections schedule for the three-month period from January to March 2020. [5 Marks) Prepare a cash forecast for the three-month period from January to March 2020. [5 Marks] Assess the Operating Cycle ratios and their implication on the working capital requirements of the company for the forecast period. iii. 2. Read Only - You can't save changes to t... QUESTION THREE Shopfree Ltd is a retail company based in Lusaka, An Intern Analyst has extracted the following information for your review relating to the financial plan for the year ending 31 March, 2021. 160 Sales (K'm) Gross Profit mark-up (%) 35 The operating cycle for the retail trading industry has been calculated as follows: Inventory 64 Days Page 3 of 4 Receivable Payables Quick ratio 88 Days 110 Days 1.2 times Required: A. Calculate the expected investment in the following: i. Inventory [3 Marks) ii. Receivables [2 Marks] iii. Payables [2 marks] B. Calculate the target current ratio. [3 Marks] C. Determine the working capital requirement expected over the period. What would be the cost of financing the requirement if short term bank loans were at 8%? [5 Marks] D. Advise when overdraft financing would be advisable as compared to receivables factoring. = QUESTION TWO The following information was extracted from ABC Ltd's financial statements for the year ended 31 December 2019 a. Sales on 30 November 2019 were K100 million and K110 million on 31 December 2019. For the year 2020, sales are expected to double at a constant monthly rate. b. 80% of the sales made are on account; the remainder on cash. c. From past experience, 5% of the receivables have turned out to be irrecoverable. d. Credit customers pay as follows: i. 75% in the month following the sale; 15% two months after the sale month. e. Inventory levels are maintained at 20% of the following month's sales. f. Accounts payables are at settled at 30 days after purchase. ii. Required: i. Prepare a collections schedule for the three-month period from January to March 2020. [5 Marks) Prepare a cash forecast for the three-month period from January to March 2020. [5 Marks] Assess the Operating Cycle ratios and their implication on the working capital requirements of the company for the forecast period